Losing Money. What Should I Do With My 401k?

My 401k dropped precipitously. It’s heart wrenching to see several years of diligent savings wiped away. There are many bloggers that are in the same boat — e.g., Gather Little By Little, Paid Twice, My Two Dollars, Bible Money Matters, Financial Nut, etc. And it doesn’t take a genius to figure out that many of you are in a similar situation.

Common questions about 401k

Many of us a asking questions like:

Should I continue to invest in my 401k?

Should i still invest in my 401k?

Should i still contribute to my 401k?

Should I take out my 401k?

Should i take my money out of my 401k?

…

I hope we can have an open discussion about this topic so be sure to add your comment below.

Keeping my 401k investing plan the same

Personally, I am keeping my contribution the same as it was before. If the stock market maintains its historical characteristics, then this is a great time to buy. Secondly, I haven’t rebalanced my portfolio yet, because my allocation is still within the targeted range. For some of you, this may be a good opportunity to rebalance to do more “buy low, sell high.”

The only change I have done is changing how my future contributions are invested (note: I am not moving existing money from equity to fixed-income). This Bear Market highlighted the need to have a bit more fixed-income to soften the impact of down market, and provide greater ability to rebalance money into equity investments.

About the Author

Pinyo is the owner of Moolanomy Personal Finance. He is a licensed Realtor specializing in residential homes in the Northern Virginia area. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, and financial literacy author.

Realist: Thank you for your post and your intellectual perspective on this. Most people tend to believe and regurgitate what’s being spoon-fed to them over tv, radio, news outlets in regards to this mess and how to weather through it. I’ve been grappling with what I should do with my 401K–whether to continue to watch the bloodletting in some baseless hopes that this thing will miraculously turn around in 10-15 yrs.; or pull out and make some independent judgments on how to invest and protect my investments (thereby taking the hit in tax penalties since I’m nowhere near retirement age). It’s hard to know what to do, or what’s in my best interest in the long term. But like you, I have a hard time trusting the advice of those who’ve been complicit in the system that’s failed us all. Those retirees who’ve followed lock-step with the advice of financial “experts” and advisers are all screwed now. It is time to wake up and think for ourselves now.

All of you are really silly if you think any of that money is going to be there. It won’t even be there in 5 years, let alone 30. All that money is lost, plain and simple, and it is NOT coming back. This is the end of the US financial system, welcome to the NWO and wealth distribution. You all really need to wake up and pull your large rear ends off the couch and from in front of the TV soaking up the lies from Fox and CNN.
This is all so very pathetic, what’s become of this once great nation.

All right. So my last post might have come off as a little strident. Allow me clarify a couple of points.

First, I don’t believe in Armageddon. I think the human species will survive no matter what you throw at it–especially the top 1%, which will always outsmart the other 99% (hence the stock market game).

Second, I believe that capitalism, or some watered-down form of it, is here to stay. There is no better motivator for inovation than human greed.

Therefore, I am not saying that money cannot be made in this system. On the contrary: Great amounts of money can be made in this system precisely because most of the participants are wrong most of the time.

I pointed out that the Nikkei average is now 25% of what it was 18 years ago. But actually, adjusted for inflation, it’s probably more like 10% of what it was. Now take a look at some of the conversations on this page, and you might be able to imagine a 45-year-old Japanese investor making these same arguments in the year 1991. If that investor were diversified in the market, his savings would now be worth 10% of what it was then, and now he’s getting ready to retire.

So you say, “Well that’s Japan, this is America.” Well, look at the Dow. You might think that it regained its high last summer when it hit 14k, but adjusted for inflation, it would have needed to hit about 17k. And now, with it at 8k, and adjusted for inflation, it’s about where it was 11-12 years ago. That means you could have stuck your money under a mattress for the past 12 years and done as well as the Dow, or S&P.

“But wait”, you say. “A mutual fund is actively managed. It doesn’t just blindly follow the indexes.” Well, you’re right, and that’s actually even worse news, because 90% of mutual fund managers can’t even match the S&P. Imagine that: 90% of mutual fund managers can’t make good enough decisions to maintain the value of your savings at what it was 12 years ago!

All right, so I’ve dissed on the system enough. You asked where I would put my money. The “where” changes all the time. That’s the difficulty of this system. And that’s why people who realize that this is a traveling carnival can make vast amounts of money, while others are just donators.

But there are two kinds of “where’s”–short-term (what will the herd do next?), and long-term (where can I put my money so that it will appreciate in the next 10 years). As for the short-term, that’s anybody’s guess. Watch CNBC, use your stock screeners, ride the moves for a day or two, and get out. That means you have to be a full-time trader.

But most of us have jobs, so the long-term is where most investors focus, and rightly so. Time can be a great equalizer–if you’re in the right vehicle. Prices often get pushed to extremes by people who cannot ride out a move longer than a couple of days because they’re so heavily leveraged (witness oil or natural gas).

So what is the right vehicle? Something that people will want to buy in the future…or something that people will need to buy in the future….or something that people will HAVE to buy…in the future. That could be a stock, it could be a commodity, but it’s not the stock market. In fact, I believe that diversification is the second biggest myth about the market (after the rising-market myth).

What I’m saying is, don’t trust other people with your money–mutual fund managers get paid whether they make you money or not. Do your own analysis. Formulate your own ideas. And don’t fall for the assumptions pushed by some talking head on TV who has never made a dime in his own account. I mean, really, how many times do you have to see these guys call a bottom before you figure out that they don’t have a clue? So why believe them when they say “the market’s going to rally back. Time to get on board!”

It’s interesting to see the opinions and comments expressed here from a behavioral economics standpoint. Whether the sky is falling or America is going the way of the Romans is outside of my expertise, but as always, I would suggest that “our” investments should revolve around companies that provide products/services that we can’t live without. Whether that’s clean water, fuel for your car, or toilet paper to wipe your backside… that’s your decision to make.

Perhaps the best way to answer the argument is deciding what large quantities of people will need in the future, and investing in those companies when they are adequately valued.

It amazes me how you people speak of the market coming back as if it’s some law of nature. I’ve got one word for you: Japan. Their market topped out in 1990 and has NEVER come back. Take a look at the chart–it’s now only 25% of what it was 18 years ago! Do you really think it’s coming back?

The buy and hold strategy is based on several fallacies. First, that the market will continue to rise over the long run. Well, that premise itself depends on fragile underpinnings–that the population will continue on a constant upward trend, so that companies can sell to more and more consumers. And what does that premise depend on? Cheap energy. Well, guess what? In spite of this temporary collapse of energy prices, and in spite of what you hear from the head-in-the-sand denialists, energy in the future is going to become VERY expensive. That will curtail population growth in the developed world, and severly hamper all commercial ventures.

In short, it is foolish to take a 100 year period of time in all of human history and propound it to represent some law of nature. The Romans had a saying, “You can never cross the same river twice.”

There has never been a time like this. You want to bet your future that things will just roll along as usual? Go ahead. You just bought into the Ponzi game that has been the stock market for the last 20 years. Good luck!

It’s refreshing to see that the “my money cult” is still as insane as ever. What you’re witnessing right now is the collapse of the post Bretton Woods system.
This sucker aint coming back. If you’re lucky you may get to witness the onset of a new dark age.

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